Commentary, information, and intelligent discourse about the Irish economy

EFSF Scales Back Irish Bond Issue

This is hardly confidence-inspiring news. EFSF is supposed to save the Eurozone and offer Ireland cheap and long-term funding. What if the markets decide not to play ball and decline to offer the facility sufficient funding at low rates or long maturities?

The eurozone rescue fund has scaled back a planned bond issue designed to finance the bail-out of Ireland amid uncertainty over the level of demand.

The offering will provide a key test of investor sentiment after the announcement last week of new plans to tackle the eurozone debt crisis.

The bond from the European Financial Stability Facility will only target €3bn, instead of €5bn, and will be in 10-year bonds rather than a 15-year maturity because of worries over demand. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity …

Already delayed from last week, EFSF officials decided to price this week because market conditions could deteriorate if they held off any longer.

The bond is expected to price at yields of about 3.30 per cent, and about 130 basis points over Germany, the European market benchmark. This is a big mark-up since the middle of September when existing 10-year EFSF bonds were trading around 2.60 per cent and only 70bp over Germany.

Not good.

Update: Eoin points us to an Oct 13 statement indicating they intended a €3 billion issue. Thanks Eoin. It appears the FT over-egged this one. They’re probably right about the delay, the reduced maturity and the higher yield

51 thoughts on “EFSF Scales Back Irish Bond Issue”

And what demand would that be? Isn’t the whole crisis about a collapse in demand ? Maybe if demand in Ireland could be encouraged rather than squeezed via austerity there might be more demand for the bonds.

I must say, it has been very interesting following the Irish economy on irish economy over the last 18 months or so. And now with tits moving upwards I recall the “there is no alternative” brigade from last November. Here we are one year on and there is still no sign of any competence. The same buffoonery except now it’s foreign clowns rather than home grown ones.

The message from the markets is that Ireland is doing better now but the news that 2FM is running a campaign with the SVP to ensure no child is left without a toy at Christmas tells a different story.

Further EFSF issues for 2011
For the second half of 2011, subject to revision and
market conditions, EFSF should place a further
4 benchmark bonds
• all issues aiming at €3-5 billion per transaction
• through syndications, auctions and private
placements
• denominated in euro or other major currency
• in support of both Portugal and Ireland

“Germany’s structural private sector and current account surpluses make it virtually impossible for its neighbours to eliminate their fiscal deficits, unless the latter are willing to live with lengthy slumps. The problem could be resolved by a eurozone move into external surpluses. I wonder how the eurozone would explain such a policy to its global partners. It might also be resolved by an expansionary monetary policy from the European Central Bank that successfully spurred private spending in the surplus countries and also raised German inflation well above the eurozone average.
Germany is in a trap of its own devising. It wants its neighbours to be as like itself as possible. They cannot be, because its deficient domestic demand cannot be universalised. As another great German philosopher, Hegel, might have said, the German thesis demanded a Spanish antithesis. Now that the private sector’s bubble has burst, the synthesis is a eurozone fiscal disaster. Ironically, Germany must become less German if the eurozone is to become more so”

So, having gamed insurance on sovereign debt, there is now surprise at low demand for debt issued by EU SIVs? Hoocudanode.

Once again, though, the ‘market’ is acting before the rating agencies. Given the wall of demand for AAA paper, is it not a little concerning that the EFSF can’t issue as much as it would like? What chances then of levering it up? What chance of it retaining a AAA rating? For all their faults, the ratings agencies are not the ISDA.

IMHO as an innocent european citizen-serf, the ECB is the only vehicle with the power to sort this out. Over to Mario … an Italian coup, a three trillion bazooka based on Kant’s categorical imperative and an inflation rate of 4% for a wee while ….

@all
Why oh Why is everyone afraid, terrified, of triggering a CDS? The Derivatives Death Star might just be real ….

The EFSF has so far issued a grand total of 13bn in bonds, or 1% of it’s hoped for “firepower”. They’ll never be able to issue 1trn into the private sector, that’s why they wanted to the ECB involved.

For clarity, it better to reference swap rates rather than Bunds when discussing the pricing on these – if it prints at 3.3% that’s roughly swaps +75bps, vs their previous 10yr issuance in July at swaps+17bps, so it’s a de facto increase of 50/60 bps.

Re legal ringfencing of funds – not sure, though the purpose of the loans being for Irish and Portuguese support programs is included in the ‘term sheet’ or whatever, so suppose it might be ring fenced.

@George
Following part of interview with Herr Schauble in Der Spiegal might explain
the doubts…

SPIEGEL: A few weeks ago, you promised the public that Germany would be liable for a maximum of €211 billion ($298 billion) of the euro backstop fund, the European Financial Stability Facility (EFSF). Now, EU leaders have agreed to “leverage” the fund, to increase its impact to €1 trillion. What is the real story?

Schäuble: What I said is true. First, Germany’s liability is limited to €211 billion — or, to be more precise, €211.0459 billion. Second, we are boosting the effectiveness of the EFSF to achieve a greater stabilization effect with these funds.

SPIEGEL: That sounds like magic.

Schäuble: If we decide to make €100 billion available to Greece, for instance, then the euro states guarantee €20 billion via the EFSF. The rest is contributed by private creditors who can then fall back on these €20 billion as a kind of insurance should Greece default. This allows us to provide more assistance without increasing the liability of the EFSF.

SPIEGEL: But what you are not telling people is that this increases the risks for taxpayers. The EFSF will always have to pay first if something goes wrong.

Schäuble: The risk doesn’t necessarily increase. In fact, it may even decrease.

SPIEGEL: Now, that really sounds like magic…

Schäuble: …but it’s economics. By enlisting the help of other creditors to increase the amount that we can cover with the EFSF to €1 trillion, we also bolster the EFSF’s defenses against possible attacks from speculators. This reduces the likelihood that we would be liable for losses in the first place.

I take it he is sceptical about the bond issue being scaled back in size. But there’s nothing in what he wrote that contradicts the story. “All issues aiming at €3-5 billion per transaction” means €3 billion is the lowest end of what might have been planned.

The FT piece says the following

“Bankers familiar with the issue also said the EFSF had been considering a €5bn issue. However, the EFSF has denied this, saying it had always targetted a €3bn issue.”

My inclination is to believe the FT’s sources.

As to the other elements of the story, I don’t know if Lorcan disagrees that the issue has been delayed, is shorter maturity than originally planned, or is expected to have a substantially higher yield than earlier issues. If he does, he didn’t say so.

As I understand it Ireland has ensured that (included in our huge debt of 170BN) there is a “cushion” of 25 BN Euro which is designed to fill the fiscal gap until January 2014 regardless of who wins the the austerity debate and will not be used if and when a stimulus is started.

Any “stimulus” will dip into the NRPFand public/private investment by realisation of state assets probably through a combination of the first two funds in order to reconcile politcal preferences. The timing and amount of such a stimulus (ie starting in 2013 or 2014) is ,IMHO, about the only thing that “not good” news from EuroLand will determine.

Perhaps we are being conditioned to instintively react to any news from Euroland, (despite the well known fact ,confirmed last week, that decision making in Euroland resembles that of a bunch of kids in junior infants) as “not good”.

Compared to the beginning of the year IMHO it is a lot easier for Ireland to be more sanguine about MV Euro and itś assorted officers and crew.

The simple fact is that we still do not know whether the Euro will survive. However I suspect many Irish people are wondering ( whether MV Euro stays afloat are not) this may not be vessel we want to travel on for more than two more years.

As you wrote in your post about Iceland the Euro is not a good place to have a banking crisis. It would not surprise me if, from an Irish pesrpective, the Euro is not a good place for any crisis. There are four or five different crises going on throughout the currency area and it often appears that the words “Euro” and “crisis” are synonymous.

Consequently ,IMHO, we should be treating news from Euroland as simply news to be considered and digested.

If it continues to be “not good” than the political and diplomatic challenge facing the Irish government will be to figure out the nicest way to wish our former fellow travellers bon voyage as we navigate a different monetary voyage within the European Union.

Saving Greece was absolutely essential for democracy and stability and the overall European project. The most frightening aspect to me was that some leaders in Europe did not appear to realise how dangerous it would have been if Greece had been cut adrift. Some people even seemed to be relishing the prospect.

Greece only emerged from military dictatorship 30 years after the German occupaion ended and in many other parts of Europe (including the part of Germany where Dr Merkel hails from) World War II did not really end until the early 1990`s.

In Ireland we have to use the coming months to learn lessons about how badly the Euro has been mangaed when faced with its first major crisis and investigate alternatives.

Fortunately there is precedent in Ireland for “amicable separation”. Ireland created its own currency in 1979 some two and a half years after the IMF came into the sterling area in 1976. The Irish separation from Sterling took place without much acrimony.

In the 1970ś we were on the periphery of a Sterling crisis which actually had very little to do with us and was taking place elsewhere. Just because we were “stitched up” in September 2008 and November 2010 does not conceal the fact that we are still on the periphery of where the actual crisis is really taking place.

What Ireland needs to do is observe events in Euroland, debate future membership of the Euro currency, investigate an alternative currency architecture (which many people suspect we are actually already doing anyway ) hold a referendum and, if the decision is made to leave the Euro, carry out the transition over a reasonable period of time.

What would be “not good” is if the Euro collapses before we are prepared to leave by 2014. Of course if the Euro does somehow manage to get its “act together” we may be “persuaded” to stay on board for a “sweetener” of 75 BN Euro and meaningful guarantees.

Ireland is not comparable to Vichy France of WW II and our own “Quisling” era (November 2010 to March 2011) has left us a lot wiser.

IMHO just because our current crop of leaders “smile for the cameras” (as opposed to the occasional early morning bark) when in EuroLand does not conceal the fact that many of our European partners are in no doubt that they are dealing with a very different ,and wiser, Irish nation.

Other elements in the mix are (i) the decision by the Bank of Japan to intervene to weaken the yen (which suggests the “currency wars” predicted by Brazil some time ago may be starting in earnest) (ii) the decision by the German constitutional court to block the specials “secret Committee of Nine” of the Bundestag for the approval of bond purchases by the EFSF (iii) the deep political difficulty in which Schaeuble finds himself because of the mislaid €50 billion in Hypo (iv) another U-turn by Merkel on the possibility of the introduction of a minimum wage in Germany, further underlining the disarray in the governing coalition.

This is before one even starts with what is wrong with the amended EFSF!

Looking at the problem from an Irish point of view, the problem is rather simple. If we cannot raise the money in the markets, and the EFSF is also incapable of providing it, there is only one other reasonable possibility viz. that of going cold turkey in relation to balancing public expenditure.

Now, that would really put a damper on the spirits of those living off the public purse on the basis of money borrowed in the markets to fund current state outgoings.

SPIEGEL: But you cannot deny that the decisions of the past week have unmistakably German traits.

Schäuble: It is, of course, gratifying when even SPIEGEL occasionally acknowledges that the German government is doing a good job…

SPIEGEL: …you’re welcome…

Schäuble: …but we will get nowhere in Europe if we conduct this debate according to national points of view. It is an undisputed fact that high government debt is the main cause of the crisis. So the response to the crisis cannot be that of further increasing the debt level. The response to the crisis can only be that of enhancing stability policies.

SPIEGEL: That sounds about as German as it gets. Is Germany on its way to becoming a hegemonic power in Europe?

All I see around here is quisling_esque capitulation to the vichy_banking subset of the financial system. I fully agree with you on assisting Greece, and a referendum on whether Joe and Joan Irish citizen should/should_not pay for the gamblers in the vichy_banking system is a great idea. Let’s run it with the Children’s Referendum (as they have been sold into debt_slavery) and the Revised Oireachtas Inquiry Referendum.

Just wondering how many of the Figure_of_8_AGs might have been called to an Oireachtas Inquiry on the Banking Catastrophe;

Peadar S, of course, the preacher of austerity for the masses; Mick of course AG 99-02, Justice Min & Tanaiste and radical neocon individualist ideologue 04-07; AIB Dermot of course, who was there on that fateful night in Sept 2008; David has already given evidence to Mahon, so experienced in this sort of thing; Paul of course was AG on that fateful night and one assumes [acknowledging that assumptions are always dangerous] that he might have been consulted (citizen interests under the Constitution etc) and was that bail-out constitutional during his watch?
John, of course, represented the Gardai at the original Abbeylara so might be excused; let’s leave Paddy alone – gubu and all that – but then again – gubu begat bert_ie.

And that makes 6 or 7 or 8 out of 8. A Clear Majority. Hmmm no correlation whatsover intended on the AGs’ intentions.

In my last post (on this fast moving site) I was reacting to your link about a Greek referendum.

I also agree some “cold turkey” may well be on the menu for some time after this Christmas.
It will be interesting to see how many of our intrepid Public “Servants” will reach for their Golden parachutes as they prepare to exit and privately sneer at the rest of their colleagues who are actually doing a good (but expensive) job.

The cold light of reality also seems to me to be about to break on the Emerald Isle in the matter of money borrowed, money still owed and money we would like to continue borrowing to keep us in the style to which we have become accustomed. I would agree with the position you take on various threads although I am no expert on the technical detail.

I re post here the link to the Liberation interview with a noted Greek professor of history. And they only had 400 years of Ottoman oppression! (Google Translate button will give the gist of it).

@DOCM
The state via the offical banks is the only institution creating money – you need money tokens to sustain commerce as the commercial banks are not producing credit and are mere debt servicing agencies rather then simple holders / banks of cash.

If the state balanced its fiscal books while insisting that debt be paid we would be exchanging cows for pints.
Everybody in the domestic economy is dependent on someone producing money or credit here as money is at its core a mere utility to faciltate commerce.
If not ,all commerce would stop -therefore your living off the public purse argument is absurd.
It would mean every service / product provider in the land could not sell his services as no money would be available for exchange.
Thats Pre – Caveman economics , pre bone swap economics.
We are running a marginal current account surplus anyhow so whats your point ?

If it gets to that point the entire euro game is over anyway. In which case, given that possibly half the country will be unemployed or underemployed at that point, we can have our Punt Nua central bank functioning as a CB should and providing all the money required, debt free, to revitalise our economy, without any risk of excess inflation.

In a somewhat haphazard way, this is exactly what China did late 08, early 09 & has maintained it’s pace of rapid growth following a mere downward ‘blip’.

With growth forecasts now dropping right across eurozone & elsewhere, (oh what a surprise! – not) more ‘austerity’ policies etc., the EU authorities & their economic advisers & their grasp of macroeconomics is going from bizarre to downright insane.

The ECB +must+ be brought in to play as a proper central back, to both back stop or supply required public sector debt relief & provide economic stimulus funds. All can be done debt free of course as the ECB is the +issuer+ of currency, not a +user+, or on some pretend gold standard.

The present course is analogous to a man trying to lift a bucket by the handle whilst standing in it.

I don’t hold out much hope that many here (apart from the obvious few) will bother to read an economist who actually understands macroeconomics properly, but here’s a link anyway, Prof Bill Mitchell.

Maybe if Ireland’s leading economists are so sure everything’s going swimmingly just now would just bookmark it for use a year or two down the road when the EMU & Ireland with it has failed disastrously?

“Under the new structure EFSF is planning to issue one benchmark bond for Ireland for €3 billion before year end. Ireland was granted financial assistance on 28 November 2010, the terms and conditions of the financial assistance package were agreed by the Eurogroup and the EU’s Council of Economics and Finance Ministers. The issues initially scheduled in Q4, 2011 in support of Portugal’s financial assistance programme could now be issued in early 2012. Details will be disclosed in due time.”

On the basis of severe cuts to salaries what happens to the ongoing mortgage mess?

Don’t get me wrong I think there is merit in your argument as Morgan Kelly indicated some while ago but the wider implications on personal debt defaults means the Ray McSharry knife can’t realistically be taken from the drawer without another PCAR €25bn – or am I missing something?

Judging by the mood in Leinster House (post Oireachtas powers referendum) I am gald I am not a former senior Public “Servant”. Next time around I suspect that the electorate may well be asked to vote on a “clinically precise incision” rather than a confused “stab” .

Culturally the victms of the Vichy took revenge very quickly as soon as they had the chance but were quicker to forgive than the Quisling victims who tended to be slightly more restrained in their revenge but never forgot. This probably explains why Norway`s Scandinavian neighbours are not in the Euro and why France is in the mess it is.

I wonder what kind of regime certain Irish former senior Public “Servants” would like to be dealing with in the very near future? An enraged (but quick to forgive) former “Vichy” regime or a cold , clinical and calculated former “Quisling” regime.?

It will be interesting to observe how the failure of the former results in the determination of the latter in Ireland. 🙂

I am absolutely not advocating a cold turkey solution. But it would be the logical consequence of a failure of the EFSF as exit from the euro for Ireland would be a total disaster while cold turkey would be what the description implies; intense withdrawal pains followed by a hopefully rapid recovery. There is no minimum level for public service wages – and pensions – other than what the state can afford to pay.

On the mortgage issue, we have an appropriately named website in daft.ie. Thousands of properties sitting immobile on the site while the owners refuse to accept prices that would clear the market. I saw, however, one promising swallow with regard to Kerry where a house was advertised as “priced to sell” (at one third of the initial asking price).

Meanwhile, we have conferences about the issue when there is a continued refusal to release the data on the actual prices that houses are selling at!

This state of prolonged delusion – aided by madcap schemes such as that recently touted by NAMA – can only delay the eventual denouement. It is to be hoped that it will be less painful than that for Greece.

This report provides an independent evaluation of recent IMF surveillance in the euro area (EA). It focuses on the euro area as a whole and on four countries severely hit by the recent economic and financial crisis, namely Greece, Ireland, Portugal and Spain.

re half the country will be unemployed or underemployed at that point.

Sometimes I wonder if we are not at that “point” already.
Twenty percent (of the woking age group) derive most, if not all of thier income from Social welfare, the powers to be seem to think that we can get by with less public servants and we have an increasing number of middle aged “retired” public servants.

In addition to that we self employed/small business sector which seems to be primarily preoccupied with debt management and trying to coax payment out of equally cash strapped customers : “It is work Jim but not as we know it”.

Some of the news items below that came out over the weekend might help with above. The ratings report on the EFSF outlook would really need to be compared relative to last to get an idea how the sands are shifting. The numbers references are to Bloomberg, but if you enter into Google with quotes, the articles should come up. (None of this btw is in any way related to who the cash is being raised for in this instance i.e. Ireland)

Regling Says EFSF to Take Junior Tranche of Debt Sold by SPV {NSN LTT4T36S9728}

.

Moody’s affirms EFSF (P)Aaa Rating, with a stable outlook Moreover, Moody’s has today also assigned a first-time provisional short-term rating of (P)P-1 to the EFSF’s debt issuance programme. Today’s rating action follows the completion of a ratification process for the amended EFSF structure .. The amendments do not apply retrospectively to outstanding issuances. ..
TRANSITION/DOWNGRADE RISK The potential risks that could negatively affect the creditworthiness of the programme include a potential deterioration in the creditworthiness of the participating euro area member states (as reflected in Moody’s ratings). Changes in the ratings of these countries could also result in downward pressure on ratings assigned to EFSF issuances. The creditworthiness of the programme would be particularly sensitive to changes in the ratings of Aaa countries with large EFSF contribution keys, i.e. Germany, France and the Netherlands. Moreover, a weakening of the euro area member states’ commitment to the EFSF could have negative rating implications. {NSN LTSTI43PWT1D}

.

S & P Affirms EFSF Rating At AAA; Outlook Stable {NSN LTSAXN3V2800}

.

Moody’s: Mixed credit implications from EU Summit measures. The effect of capital strengthening and funding guarantees on European banks is likely to be marginally positive. For Spain and Italy, however, the measures are likely to be neutral, as it is unclear whether they will ease their market funding pressures. It is also neutral to negative for the Aaa-rated euro area countries facing the prospect of providing additional support. .. the increased exposure should first loss guarantees be called and the prospect of more support in the future implies a greater risk to creditors of the countries that ultimately provide support {NSN LTST5A3PWT1D}

.

EFSF’s Regling Says Yuan Bond Issuance Possible .. issuing bonds in yuan would be contigent upon approval by Chinese authorities and may be difficult. He also said the EFSF would only help eurozone member countries “buy time” to implement policy reforms at the national level but maintained that it was not a long-term solution. {NSN LTVCA43V2800}, {NSN LTTGGZ1A1I4H}

China is no “saviour” for the European Union, though it is willing to help the single currency union through its current debt crisis, the official Xinhua News Agency said in a weekend editorial. The English-language piece didn’t stray from recent government rhetoric about Beijing’s role {NSN LTVDE83V2800}, http://www.reuters.com/article/2011/10/30/china-europe-idUSL4E7LU02820111030

Recent history would suggest that the outcome would be a Coalition of The Willing Vichy_ites and Quisling_ites and that they would continue to dump sh1te on, and expropriate the last schillings from, the supine citizen_serfs.

Sometimes one has to fight ….

@All the “Cold Turkey” Spinners

Not so. You’re as bad as The Joe_McCarthy_ite_Aw-Gees – and I suspect somewhat latently strategic in your hidden interests: Blind Biddy remains in contact with the reasonably well heeled Wild Geese, and Patricia the Irish_Soveriegn_in_exile retains some global influence in influential quarters. The International Brigade hasn’t gone away u know!

“Recent history would suggest that the outcome would be a Coalition of The Willing Vichy_ites and Quisling_ites and that they would continue to dump sh1te on, and expropriate the last schillings from, the supine citizen_serfs”

But they Vichy and Quislings can’t do it without contract.

Guess which Pot Bellied Socialist just gave away more or our Oil and Gas for 0 Cent?

The story that something has gone pear-shaped with this bond sale won’t go away — WSJ, Wednesday

LONDON—The European Financial Stability Facility, the euro zone’s temporary rescue fund, plans to hold off on selling the €3 billion bond to fund the bailout of Ireland due to volatile market conditions, a person familiar with the situation said Wednesday.

The EFSF held a call with investors Wednesday morning to give an update on its latest talks about the 10-year transaction, which it announced Monday.

Market participants had anticipated the bond would be launched in the middle of this week, although no official timing was ever stated.

While the proceeds from the deal will go to fund the bailout package for Ireland, the actual sale of the bond has very little to do with the status of the sovereign. The previous three bonds the EFSF sold this year have gone toward both the Irish and Portuguese aid packages.